CP Railway asks for conciliator in labor talks

Reuters Staff

3 Min Read

TORONTO (Reuters) - Canadian Pacific Railway said Friday it has asked the federal government to appoint a conciliator to help it address pension reform in its labor talks with the union representing 4,800 train crew employees and rail traffic controllers.

Canada’s No. 2 railroad, which is under pressure from an activist investor, said pension costs are significantly affecting its operating efficiency and ability to invest in growth opportunities.

The request for a conciliator from the Minister of Labor starts the clock ticking towards the possibility of a legal strike or lockout. The average conciliation process can last 80 to 90 days, the company said.

Calgary, Alberta-based CP said it has contributed C$1.9 billion ($1.9 billion) of solvency deficit contributions to its pension plan over the past three years.

CP, the target of Pershing Square Capital Management hedge fund, which wants to replace the railway’s CEO and boost efficiency, said it seeks changes to legacy pension and post retirement benefits that are industry comparable.

It has a number of proposed options, which CP said were fair to workers and won’t affect existing pensioners.

Some proposals guarantee a pension payment that is comparable to what the union already agreed to for the bulk of its members at larger Canadian National Railway, CN said.

“Generally speaking, union negotiation at the rails is about maintaining parity with your competitors,” Genuity analyst David Tyerman said.

“If one of them gets something that the other doesn’t, then you’re going to start an arms race.”

As its battle with Pershing Square heats up, CP’s efficiency has been unfavorably compared with CN’s best-in-class performance. CP’s operating ratio, which measures the percentage of revenue needed to run a railway, is 81.3 percent, versus CN’s 63.5 percent.

Pershing Square founder William Ackman wants former CN boss Hunter Harrison to take control of CP and wrestle its operating ratio down to 65 percent by 2015. CN has set a target of 70-72 percent in 2014.

CP’s train crew and controllers, whose contract expired December 31, 2011, have been in talks with CP since early October 2011. They are represented by the Teamsters Canada Rail Conference, which was not immediately available for comment.

CP shares were up 1.3 percent, or 98 Canadian cents, at C$73.86 on the Toronto Stock Exchange on Friday afternoon.

“I don’t think investors very often react to strikes,” Tyerman said.

“They only react to situations where competitiveness of the companies in question is damaged in some way. And that’s usually not by a strike, it’s usually by the fact that the management caves in to the union and makes the company uncompetitive.”